Lean analytics to change business decision making
Attending to the “one metric that really matters” is one principle of a “lean analytics” approach
Attending to the “one metric that really matters” is one principle of a lean analytics approach propounded by Alistair Croll and Ben Yoskovitz, co-authors of Lean Analytics.
Croll argues that there is afoot a “fundamental shift in how businesses are run and how decisions are made”. And despite the affinity between their Lean Analytics book and Eric Ries’ Lean Startup, Croll says this is “not [just] a shift for startups but for business decision-making. It will be considered normal in three years and required curriculum in business schools in five”.
Montreal-based Croll is the founder of solveforinteresting.com and has been involved in a slew of events including O'Reilly's Strata and Techweb's Cloud Connect. In 2000, he co-founded Coradiant, a “user experience management company” acquired by BMC Software in 2011.
At the heart of what he and Yoskovitz call ‘lean analytics’ is a democratisation of data, underpinned by cloud and social media technologies. They argue it is now much more possible to try out business hypotheses quickly, and find out who really cares about a company’s product.
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He gives the example of San Francisco-based Lit Motors, makers of a fully-enclosed electric motorcycle.
“The risky part of that was ‘who will care?’ They took their $700,000 seed investment, built a prototypes showroom, watched people play with the prototypes and got pre-orders."
Startup entrepreneurs have a “bias to build” that blinds them to using data to find out what people will buy, says Croll.
“Making what you can sell sounds like common sense, but think about the people who start companies. For them, any prediction of the future that does not sound unreasonable is not useful.
“Founders by definition are people who like to build things, and who have an unusual view of today, because they need to envision something different. So they will reject popular feedback and have a bias towards building things they want to build."
As a corrective to this entrepreneurial cognitive bias towards ignoring data, the two authors are running a lean analytics Geckoboard workshop, on 7 June in the East End of London, at which, Croll says: “We will bring broad range of examples of people applying data-driven analytical thinking in business to find the right product for the right market more quickly.
“But this does not just apply to small startups," he adds. “There is a subversive style of [iterative] thinking here that is not taught in traditional business schools.
“Traditionally the MBA would be the decision maker and the business analyst would deliver a requested report. The former is now exploring the data for himself or herself. A key shift is democratisation of analysis tools that are more interactive.
“The business leader of tomorrow is less the person who can persuade others to act in the absence of information, and more the person who asks good questions, recognising that their gut feel is just an hypothesis to be tested.
“The business has to tolerate asking questions. In the past, the person asking questions all the time was just annoying."
Croll speaks of a logical sequence for a data-driven lean startup. Find 100 people who care about your product and make them stick around; get virality; make some money; invest to acquire new customers; then grow the business more conventionally with a more expansive sales and marketing organisation.
And so, a new restaurant business would avoid expensive marketing and making fancy menu cards upfront, instead experimenting with different menus, and would move forward once it had hit on what was working.
“Once you’ve got the right menu, you go for virality, then control costs, spend money on ads to acquire new customers, and so on," says Croll.
Croll says it is crucial to know what your key metric is.
“Most people don’t know what metric to look at for their business. For example, you are a SaaS business and you are losing a quarter of customers per year. Is that good or bad? Losing 2% of customers per month in a SaaS business means that most stick around for 4 years. That’s good."
Croll’s advice for enterprise IT is to “stop jealously protecting technology that is not so precious anymore. It was designed for a world where computers were scarce. Now they are abundant and we make money around it, not from it. It’s like being an author [of a business book]. You make money because you have a book, not so much from the book."